Amicus Therapeutics Poised For Rebound Into December Phase III Results

Amicus Therapeutics (NASDAQ:FOLD) is focused on the development of new treatments for rare metabolic/genetic disorders, including lead product candidate AMIGAL (migalastat HCl). This is summarized below, with pivotal Phase III results expected in December as part of a recently expanded collaboration with GlaxoSmithKline (NYSE:GSK) that includes full U.S. rights to the drug for FOLD and a cost-sharing agreement for continued clinical development expenses.

Shares of FOLD have pulled back significantly from a run-up into the mid-$6s about a month ago. Shares are currently trading nearly $1 below the 50-day and 200-day moving averages in the low to mid-$4s.

Aside from the recent market pullback (especially in small-cap biotech stocks), there is no fundamental reason for the decline in shares of FOLD, which recently reported Q3 2012 results (click here for a transcript of the most recent conference call and updated timeline for Phase III results next month). FOLD also provided a more definitive timeline for six-month primary endpoint results next month for an ongoing Phase III clinical trial for lead rare-disease drug candidate, AMIGAL (migalastat HCl), for the treatment of Fabry Disease.

I expect shares of FOLD to bounce back to at least the mid-$5 to low-$6 range this month as investors anticipate Phase III results next month. I estimate these results will have a high probability of success (80%) given recently updated data from a long-term extension study (including over five years of data), and the design of the Phase III study compared to a placebo with an objective endpoint (i.e., measured levels of a compound associated with Fabry disease known as GL-3) that is not subject to the placebo effect commonly observed in clinical trials with subjective endpoints (e.g., patient reported pain ratings, mood-related questionnaires, etc.).

Success in the Phase III study would likely propel shares toward consensus analyst stock price targets in the high single digits (i.e., the $7-$9 range), while negative results would likely plunge shares toward cash value (i.e., $2-$3). The company has plenty of cash, ongoing clinical trials, and pipeline compounds to survive an unexpected miss in the six-month primary endpoint results next month, but this would still be a major setback and have an immediate negative impact on the share price. The primary risk factors for FOLD include a recent pullback in small-cap biotech stocks that has been much greater than the overall market declines, as well as the high-risk binary event nature of the Phase III results expected next month (my price target scenarios and probabilities outlined above).

AMIGAL is currently being evaluated in several Phase II and III clinical trials known as Study 011, Study 012, and Study 013, with six-month primary endpoint results (levels of a toxic compound and bio-marker of Fabry disease known as GL-3 will be measured by kidney biopsy) from Study 011 evaluating AMIGAL as mono-therapy compared to placebo for patients with Fabry disease. This is expected in December, with additional 12-month data expected during the first half of 2013.

In addition, another fully enrolled Phase III (Study 012) clinical trial evaluating AMIGAL as mono-therapy for Fabry disease compared to enzyme replacement therapy (ERT) is being conducted with results expected during the second half of 2014. Updated preliminary results from a Phase II (Study 013) clinical trial in combination with ERT will be presented at the American Society of Human Genetics meeting on Nov. 8, 2012.

Encouraging signs for positive results in the upcoming Phase III (Study 011) clinical trial include long-term extension study statistics, including 17 patients that completed Study 205 with an average of five-plus years on AMIGAL as their only treatment for Fabry disease, in addition to 49 of 51 patients that completed the six-month follow-up in Study 011 elected to continue in ongoing extension studies. The high conversion rate to the open-label extension phase of the trial suggests no major safety concerns and clinical benefit for patients who would otherwise have no reason to continue receiving AMIGAL after conclusion of the study.

The company's other compound in development is Duvoglustat HCl (AT2220) for the treatment of Pompe Disease including an ongoing Phase II clinical trial (Study 010). In October, the company reported preliminary results from a Phase II drug interaction study (Study 010) in combination with ERT for the rare metabolic disorder Pompe disease demonstrating enhanced ERT activity, with results from the last group (all 4 cohorts) expected by year-end 2012.

Below are updated financial stats and other recent developments for Amicus as of Q3 2012 results reported earlier this week:

As of Sept. 30, 2012, Amicus reported cash and equivalents of $106.2 million along with negligible debt of less than $1 million and 49.4 million shares of common stock outstanding.

Amicus reported a ($37 million) loss from operations during the first nine months of 2012 and expects to end 2012 with at least $90 million in cash, which is sufficient to fund planned operations beyond 2013.

In late October, an SEC Form S-3 filing was made to register 2.95 million shares of common stock for sale by GSK, which would reduce its stake to 14% (GSK currently owns 9.8 million shares of FOLD) once declared effective by SEC and if all shares are sold.

I do not view the S-3 filing as a negative development since both companies are blinded to the Phase III (Study 011) results and the expanded collaboration announced in July (outlined below) includes many other features such as cost-sharing for development expenses. I view the filing as a means for GSK to take advantage of a major binary liquidity trading event in the form of six-month primary endpoint results from Study 011 next month (the weighted average cost basis for GSK is approx. $5.10/share for the 9.8 million shares that it currently owns so there is a high probability for booking a nice gain on positive results next month).

In July, GSK and FOLD announced an expanded collaboration (click here to see the conference call transcript) for Fabry disease from their original agreement in October 2010. It included $30 million in cash up-front, a 19.9% equity ownership stake at the time (6.9 million shares purchased at $4.56/share), and up to $170 million in potential future milestone payments, plus tiered double-digit royalties.

The expanded deal in July included the purchase of an additional 2.95 million shares of FOLD common stock at $6.30/share by GSK (an $18.6 million equity investment), bringing their ownership stake back up to 19.9% (9.8 million shares) following a previously completed stock offering by FOLD in March for the sale of 11.5 million shares at $5.70/share for net proceeds of $62 million. Please note that FOLD received the $18.6 million in cash proceeds from the equity investment up front, so the recent S-3 filing does not represent dilution as no new shares would be issued and FOLD would not receive any proceeds from the potential sale of these shares that are owned by GSK.

Below is a summary of the expanded collaboration deal terms:

Amicus will commercialize all formulations of migalastat in the U.S., while Glaxo will commercialize in the rest of the world.

Amicus and Glaxo will continue to share research and development costs for all formulations of migalastat, with Amicus funding 25% and Glaxo funding 75% of these costs for mono-therapy and co-administration during the remainder of 2012. Amicus and Glaxo will be responsible for 40% and 60% of these costs, respectively, for co-formulation immediately and for all formulations in 2013 and beyond.

Glaxo will make an $18.6 million equity investment in Amicus, bringing Glaxo's total ownership stake in Amicus to 19.9%. Glaxo will purchase 2,949,581 shares of common stock at $6.30 per share, a 7% premium over the 15-day average closing sale price ($5.86/share) of Amicus's common stock at the time of the deal.

Amicus will receive a $3.5 million cash payment from Glaxo this quarter to reflect the achievement of a clinical development milestone during Q2 2012.

Glaxo will be eligible to receive U.S. regulatory approval and product launch milestones totaling $20 million for migalastat mono-therapy and chaperone-ERT co-administration.

Glaxo will be eligible to receive additional regulatory and time-based milestone payments totaling up to $35 million within seven years following the launch of a co-formulated chaperone-ERT product. Amicus will also be responsible for certain additional pass-through milestone payments and single-digit royalties on the net U.S. sales of the co-formulated chaperone-ERT product that Glaxo must pay to a third party.

Disclosure: I am long FOLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.